Introduction to Probability

A numerical measure of the likelihood

that an event will occur
 Assigning Probabilities
Experiments process
that generates defined Experiment Outcomes
(aka sample point)
outcomes.
Toss a coin Head, tail
Sample space set of all
experimental outcomes
Ask someone Yes, No
An outcome is also on a date
called a sample point
Role a die 1,2,3,4,5,6

S = {head, tail} or { Yes, No} or {1,2,3,4,5,6}

 Counting Rules
When you are trying to identify and count
experimental outcomes

How many ways

 Counting Rules
1) For Multiple Step Experiments:
If an experiment consists of a sequence of k steps in which
there are n1 possible results for the first step, n2 possible
results for the second step, and so on, then the total
number of experimental outcomes is = (n1)(n2) . . . (nk)
NOTE if each step has the same number of
outcomes = nk

Example tossing a coin 3 times

Example a coin tossed 3 times
K = 3 (we are tossing the coin 3 times)
n = 2 (because there are 2 possible outcomes H or T)
1st Toss 2nd Toss 3rd Toss

H (H,H,H)
T
H (H,H,T)
T
H (H,T,H)
H T
(H,T,T)

T H (T,H,H)
T
H (T,H,T)
T
H (T,T,H)
T
(T,T,T)
Example: Mayas Investments

Maya has invested in two stocks, Aveda and

Sephora. Maya has determined that the
possible outcomes of these investments three
months from now are as follows.
Investment gains or losses
In 3 months (in $000)
AVEDA SEPHORA
10
8
5
-2
0
-20
Mayas investments can be viewed as a two-step
experiment. It involves two stocks, each with a set
of experimental outcomes.

AVEDA n1 = 4
SEPHORA n2 = 2
Total Number of
Experimental Outcomes:
n1n2 = (4)(2) = 8
 Tree Diagram
AVEDA SEPHORA Experimental
(Stage 1) (Stage 2) Outcomes
Gain 8 (10, 8) Gain $18,000
(10, -2) Gain $8,000
Gain 10 Lose 2
Gain 8 (5, 8) Gain $13,000

Lose 2 (5, -2) Gain $3,000

Gain 5
Gain 8
(0, 8) Gain $8,000
Even
(0, -2) Lose $2,000
Lose 20 Lose 2
Gain 8 (-20, 8) Lose $12,000
Lose 2 (-20, -2) Lose $22,000
 Another example:
How many ways can you have a hamburger if
you have the following choices as toppings

k m o p l t c
e u n i e o h
t s i c t m e
c t o k t a e
h a n l u t s
u r s e c o e
p d s e
 Another example
How many ways can we design a license plate
with the following rules:
3 letters followed by 3 numbers?

___ ___ ___ ___ ___ ___

Letter Letter Letter Number Number Number
 Counting Rules
2) For Combinations:
counting the number of experimental outcomes
when n objects are to be selected from a set of
N objects. Order of selection is not important.
N N!
CnN
n n !( N - n )!
where: N! = N(N - 1)(N - 2) . . . (2)(1)
n! = n(n - 1)(n - 2) . . . (2)(1)
0! = 1
Note: ! Means factorial e.g., 3! = 3*2*1
 How many ways can 3 items be
selected from a group of 6

6 6! 6 5 4 3 2 1
20
3 3!3! (3 2 1)(3 2 1)
ABC ACE BCD BEF

ABD ACF BCE CDE

ABE ADE BCF CDF
ABF ADF BDE CEF
ACD AEF BDF DEF
 Another example

Suppose you are chairing a 15 member

committee made up of 10 men and 5 women.

You are asked to form a subcommittee of 4

people where you want 3 men and 1 woman on
the subcommittee.

How many different subcommittees can I form?

 Counting Rules
3) For Permutations
counting the number of experimental outcomes
when n objects are to be selected from a set of
N objects where the order of selection is
important.
N N N!
Pn n !
n (N - n )!

where: N! = N(N - 1)(N - 2) . . . (2)(1)

n! = n(n - 1)(n - 2) . . . (2)(1)
0! = 1
NOTE FOR PERMUTATIONS
Each ordered outcome is different.

So if I asked people to rank sodas in order of

liking:

Coke, Pepsi, Dr. Pepper is not the same as

Pepsi, Coke, Dr. Pepper
 3 items selected from 6 as a
permutation.
Permutations of 3 items selected from a group
of 6
6!
P
6
(6)(5)(4) 120
(6 - 3)!
3

NOTE: the number of outcomes will always be

higher as a permutation than a combination
since order matters.
 Assigning Probabilities
Remember probability is the likelihood that an event
will occur

Basic Requirements:
0 < P(Ei) < 1 for all i
P(E1) + P(E2) + + P(En) = 1
 Assigning Probabilities
Methods:
Classic equally likely outcomes

Relative frequency based on historical data

indicating the percentage of times the outcome
occurs

Subjective cant assume equal outcomes and no

historical data available based on intuition and
experience
 Example: Classical Method
If an experiment has n possible outcomes, this
method would assign a probability of 1/n to
each outcome
Experiment: rolling a die
Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a 1/6 chance
of occurring
 Example: Relative Frequency
# Days Prob.
An event planner wants to
tents rented
assign probabilities to the
rented
number of tents it rents
each day. Office records 0 5 .125
indicate the following: 1 6 .15
2 18 .45
Probability assigned by 3 9 .225
dividing frequency by
4 2 .05
total
TOTAL 40 1.00
Example: Subjective Method
An analyst made the following probability
assignments to Mayas investment outcomes
(from the Sephora and Aveda example).
Exper. Outcome Net Gain or Loss Probability
(10, 8) $18,000 Gain .20
(10, -2) $8,000 Gain .08
(5, 8) $13,000 Gain .16
(5, -2) $3,000 Gain .26
(0, 8) $8,000 Gain .10
(0, -2) $2,000 Loss .12
(-20, 8) $12,000 Loss .02
(-20, -2) $22,000 Loss .06
 You try it
#9
 #10
 Events and Probabilities
Event the collection of all outcomes or sample
points
The probability of an event = the sum of the
individual sample points in the event.
In the above example, what is the probability
that 3 or more tents will be rented
M = {(3), (4)}
P(M) = p(3) + p (4)
= .225 + .05 = .275
Events and Their Probabilities
Event A = Aveda Profitable
A = {(10, 8), (10, -2), (5, 8), (5, -2)}
P(A) = P(10, 8) + P(10, -2) + P(5, 8) + P(5, -2)
= .20 + .08 + .16 + .26
= .70

Event S = Sephora Profitable

S = {(10, 8), (5, 8), (0, 8), (-20, 8)}
P(S) = P(10, 8) + P(5, 8) + P(0, 8) + P(-20, 8)
= .20 + .16 + .10 + .02
= .48
 Venn Diagrams
A way to draw sets and probabilities
Universal Set everything that is possible
A = set of outcomes

C = subset of A (contained entirely in A)

B = set of outcomes

Event Event
A B
Event
C
 Complements of an Event
Given and event A the complement of A is
the event consisting of all sample points that are
not in A (Noted as Ac).
P(A) + P(Ac) = 1
P(A) = 1 - P(Ac)

Event A
Complement of
Event A

The rectangle represents all possible outcomes: P = 1

 Union of Events
The union of event A and B is the event
containing all sample points in A or B or both.
Denoted A U B

Event Event
A B
 Union of Two Events

Event A = Aveda Profitable

Event S = Sephora Profitable
A S = Aveda Profitable
or Sephora Profitable (or both)
A S = {(10, 8), (10, -2), (5, 8), (5, -2), (0, 8), (-20, 8)}
P(A S) = P(10, 8) + P(10, -2) + P(5, 8) + P(5, -2)
+ P(0, 8) + P(-20, 8)
= .20 + .08 + .16 + .26 + .10 + .02
= .82
 Intersection of two Events
Is the event containing the sample points
belonging to Both A and B
Denoted A B

Event Event
A B

Intersection of A and B
SO According to the Addition Law
P (A U B) = P(A) + P(B) P (A B)

If the events are mutually exclusive (i.e., no

overlap)
P (A U B) = P(A) + P(B)

Event Event
A B
 Intersection of Two Events

Event A = Aveda Profitable

Event A = Sephora Profitable
A S = Aveda Profitable
and Sephora Profitable
A S = {(10, 8), (5, 8)}
P(A S) = P(10, 8) + P(5, 8)
= .20 + .16
= .36
 Another Example
According to the historical records of a manufacturing company,
the probability of producing a car with a defective steering wheel
= .10, defective breaks = .05, and both = .02. What is the
probability that the car you bought has either defective brakes or
a defective steering wheel?
Let:
A = steering defect = .1
B = brakes defect = .05
(A B) both defective = .02
.1 + .05 - .02 = .13
 You try it
# 28
 Conditional Probability
The probability of an event is influenced by
whether a related event already occurred
P (A| B) probability of A given B

P( A B)
P( A|B)
P( B) NOTE: you are reducing the sample
Space to an event that has occurred
 Example
Health insurance
Yes No Total
18-34 750 170 920
Age
35 and older 950 130 1080

1700 300 2000

A = event that person 18-34
P(A) = (920/2000) = .46
B = event that person is 35 or older
P(B) = (1080/2000) = .54
Y = event that person has health insurance
P(Y)= (1700/2000) = .85
N = no insurance coverage
P(N) = (300/2000) = .15
 Yes No Total
18-34 750 170 920

35 and older 950 130 1080

1700 300 2000

A = event that person 18-34
B = event that person is 35 or older
Y = event that person has health insurance
N = no insurance coverage

P(A Y) = 750/2000 = .375 = probability that person is 18-34 and has health insurance
P(A N) = 170/2000 = .085= probability that person is 18-34 and no health insurance
P(B Y) = 950/2000 = .475= probability that person is >35 and has health insurance
P(B Y) = 130/2000 = .065= probability that person is >35 and no health insurance
 Joint and Marginal Probabilities

Yes No Total
18-34 .375 .085 .460

35 and .475 .065 .540

older
.850 .150 1.00

Marginal Probabilities
Joint Probabilities In the margins of the matrix
w/in the matrix
 Yes No Total
18-34 .375 .085 .460

35 and .475 .065 .540

older
.850 .150 1.00
A = event that person 18-34
B = event that person is 35 or older
Y = event that person has health insurance
N = no insurance coverage

P(N|A) = P(A N) / P(A) = .085/.46 = .1848 = probability that do not have health insurance
given that between 18-34

P(A|N) = P(A N) / P(N) = .085/.15 = .5677 = probability that in 18-34 group given that
dont have insurance
 Independent events
the probability of an event is not influenced by
the presence of another event
P(A|B) = P(A)
or

P(B|A) = P(B)
 Example
Female Male
Credit 578 1122
Card
Cash 272 528

850 1650

P (cash male) = 528/1650

P (cash male)/ p (male) = 528/2500 = 528/1650
1650/2500

IS THE P(CASH) independent of sex?

 Multiplication law
Computing the probability of the intersection of two
events

P(A B) = P(B)*P(A|B)
or
P(A B)= P(A)*P(B|A)

NOTE: If the events are independent then

P(A B) = P(A)* P(B)
 You try it
#34
 Bayes Theorem
Provides a means for revising prior probabilities
given new information
 Example LS Clothiers
A proposed shopping center will provide competition
for downtown businesses like L.S. Clothiers. If the
shopping center is built, the owner of L.S. Clothiers
feels it would be best to relocate the center

The shopping center cannot be built unless a zoning

change is approved by the town council. The planning
board must first make a recommendation, for or against
the zoning change, to the council.
 Example Contd

Prior Probabilities
Let:
A1 = town council approves the zoning change
A2 = town council disapproves the change

Using subjective judgment:

P(A1) = .7, P(A2) = .3

 Example Contd
New Information
The planning board has recommended against the zoning
change. Let B denote the event of a negative recommendation
by the planning board.

Given that B has occurred, should L. S. Clothiers revise the

probabilities that the town council will approve or disapprove
the zoning change?

P(B) = negative recommendation

P(Bc) = positive recomendation
 Example Contd

Conditional Probabilities
Past history with the planning board and the
town council indicates the following:

P(B|A1) = .2 P(B|A2) = .9

Hence: P(BC|A1) = .8 P(BC|A2) = .1

A1 = town council approves the zoning change

Reminder: A2 = town council disapproves the change
B = negative recommendation
Bc = positive recommendation
 Bayes Theorem

Tree Diagram

Town Council Planning Board Experimental

Outcomes

P(B|A1) = .2
P(A1 B) = .14
P(A1) = .7
c
P(B |A1) = .8 P(A1 Bc) = .56

P(B|A2) = .9
P(A2 B) = .27
P(A2) = .3
c
P(B |A2) = .1 P(A2 Bc) = .03
 Sooo. The question is
Whats the probability of A1 given B i.e., P(A1|B)

P(A1|B) = P(A1 B) / P(B)

P(A1 B) = P(A1) * P(B|A1)

P(B) = P(A1 B) + P(A2 B)

=P(A1) * P(B|A1) + P(A2) * P(B|A2)
 Bayes Theorem
Posterior Probabilities
Given the planning boards recommendation
not to approve the zoning change, we revise
the prior probabilities as follows:

P( A1 )P( B| A1 )
P( A1 |B)
P( A1 )P( B| A1 ) P( A2 )P( B| A2 )
(. 7 )(. 2 )

(. 7 )(. 2 ) (. 3)(. 9)
= .34
 Conclusion
The planning boards recommendation is good
news for L. S. Clothiers. The posterior
probability of the town council approving the
zoning change is .34 compared to a prior
probability of .70.
 You try it
#58